2016 (6) TMI 1167 - AT - Income Tax

Addition u/s.145A being CENVAT paid on raw-material - Held that - The material available on record and gone through the orders of the authorities below. The issue in the present case is with respect to inclusion of unutilized CENVAT credit to the closing stock. We find that ld.CIT(A) while deleting the addition has given a finding that the assessee was following exclusive method of accounting and the CENVAT was not debited or credited to the Profit & Loss account and the aforesaid method has been consistently followed by the assessee in earlier and succeeding years. We further find that the Hon ble Apex Court in the case of CIT vs. Indo Nippon Chemicals Co. Ltd. reported at (2003 (1) TMI 8 - SUPREME Court) observed that unavailed MODVAT credit cannot be construed as income and there is no liability to pay tax on such unavailed MODVAT credit. Further, before us, Revenue has not brought any contrary binding decision in its support. In view of the aforesaid facts, we do not see any reason to interfere with the order of the ld.CIT(A). Thus, the ground of Revenue is dismissed.

Summary

Issues:
- Inclusion of unutilized CENVAT credit in the closing stock of raw material for assessment year 2006-07.

Analysis:
The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the inclusion of unutilized CENVAT credit in the closing stock of raw material for the assessment year 2006-07. The assessment was reopened as the Assessing Officer believed that the non-inclusion of CENVAT credit had led to an escapement of income. The Commissioner of Income Tax (Appeals) decided in favor of the assessee, stating that the exclusive method of accounting followed by the assessee treated CENVAT as a balance sheet item, not impacting the Profit & Loss account. The Commissioner relied on various case laws to support this decision, emphasizing that the Assessing Officer had not commented on the accounting policies followed by the appellant. The Commissioner also highlighted the importance of consistent valuation methods for closing stock, as changing methods without valid reasons is not permissible. Additionally, the Commissioner referred to legal precedents to argue that profits do not arise solely from the valuation of closing stock. The Commissioner directed the Assessing Officer to delete the addition of the unutilized CENVAT credit in the closing stock.

The Revenue appealed the decision, arguing that the unutilized CENVAT credit should have been included in the closing stock as per section 145A of the Income Tax Act. The Revenue contended that the exclusive method of accounting followed by the assessee did not absolve them from including the CENVAT credit in the closing stock valuation. However, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), noting that the assessee's consistent accounting method and the absence of any contrary binding decision from the Revenue supported the deletion of the addition. The Tribunal referenced the Supreme Court's ruling that unavailed MODVAT credit cannot be considered as income, further strengthening the decision to dismiss the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals) to delete the addition of the unutilized CENVAT credit in the closing stock valuation for the assessment year 2006-07.